<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
_____________________
FORM 10-Q
( X ) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarter ended July 3, 1998
or
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 0-23791
SONOSIGHT, INC.
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1405022
- -------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
P.O. BOX 3020
NORTH CREEK PARKWAY
BOTHELL, WA 98041-3020
(425) 482-8888
(Address and telephone number of registrant's principal executive offices)
_____________________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for shorter periods that the registrant has been
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days.
Yes ( X ) No ( )
-------- ----------
As of August 7, 1998, there were 4,862,871 shares of the registrant's $.01 par
value Common Stock outstanding.
Page 1 of 10 sequentially numbered pages
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SONOSIGHT, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
Part I
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Financial Statements (unaudited)
<S> <C>
Condensed Balance Sheets -
July 3, 1998 and December 31, 1997.................................. 3
Condensed Statements of Operations -
One and two quarter periods ended July 3, 1998
and June 27, 1997, and period from inception through July 3, 1998.. 4
Condensed Statements of Cash Flows -
Two-quarter periods ended July 3, 1998
and June 27, 1997, and period from inception through July 3, 1998.. 5
Notes to Condensed Financial Statements............................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations....................... 7
PART II
Part II OTHER INFORMATION
Item 5. Other information..................................................... 9
Item 6. Exhibits and Reports on Form 8-K...................................... 9
Signature............................................................. 10
</TABLE>
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PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
SONOSIGHT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED BALANCE SHEETS
(UNAUDITED)
ASSETS
JULY 3, DECEMBER 31,
1998 1997
----------- ------------
Current assets:
Cash and cash equivalents $15,630,981 $ --
Prepaid expenses and other current assets 502,526 --
----------- ------------
Total current assets 16,133,507 --
Property and equipment, net 1,424,746 409,967
Other assets 76,057 --
----------- ------------
Total assets $17,634,310 $ 409,967
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 694,671 $ --
Accrued expenses 513,561 169,839
Current portion of long-term obligations 287,796 --
----------- ------------
Total current liabilities 1,496,028 169,839
Long-term obligations, less current portion 445,074 --
Commitments -- --
Shareholders' equity:
Preferred stock, $1.00 par value:
Authorized shares--6,000,000;
Issued and outstanding shares--none -- --
Common stock, $.01 par value:
Authorized shares--50,000,000;
Issued and outstanding shares--
4,862,821 at July 3,1998 48,628 --
Additional paid-in-capital 40,566,475 --
Net advances from ATL -- 8,124,018
Net due from ATL (12,000,000) --
Deficit accumulated during development stage (12,921,895) (7,883,890)
------------ -----------
Total shareholders' equity 15,693,208 240,128
------------ -----------
Total liabilities and shareholders' equity $ 17,634,310 $ 409,967
============ ===========
See accompanying notes.
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SONOSIGHT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM FEBRUARY, 1994
QUARTER ENDED, TWO QUARTERS ENDED, (INCEPTION) THROUGH
JULY 3, 1998 JUNE 27, 1997 JULY 3, 1998 JUNE 27, 1997 JULY 3, 1998
------------ ------------- ------------ ------------- --------------------------
<S> <C> <C> <C> <C> <C>
Grant revenue $ 214,500 $ 750,847 $ 973,107 $ 1,323,085 $ 4,949,702
Expenses:
Research and development 1,913,957 1,727,804 4,068,914 3,023,472 13,822,329
Sales and marketing 520,604 28,322 1,324,211 265,719 2,592,483
General and administrative 575,696 174,969 837,258 270,088 1,676,056
----------- ----------- ----------- ----------- ------------
3,010,257 1,931,095 6,230,383 3,559,279 18,090,868
Interest income 219,271 -- 219,271 -- 219,271
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
Net loss $(2,576,486) $(1,180,248) $(5,038,005) $(2,236,194) $(12,921,895)
=========== =========== =========== =========== ============
Basic and diluted net loss per $ (0.53) $ (0.25) $ (1.05) $ (0.48)
share =========== =========== =========== ===========
Weighted average shares used in
computation of basic and diluted
net loss per share: 4,862,716 4,663,000 4,815,192 4,660,000
</TABLE>
See accompanying notes.
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SONOSIGHT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM FEBRUARY, 1994
TWO QUARTERS ENDED, (INCEPTION) THROUGH
JULY 3, 1998 JUNE 27, 1997 JULY 3, 1998
------------ ------------- --------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(5,038,005) $(2,236,194) $(12,921,895)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 83,317 42,397 217,980
Changes in operating assets and liabilities:
(Increase) decrease in prepaid expenses
and other current assets (502,526) -- (502,526)
Increase (decrease) in accounts payable,
and other accrued liabilities 1,038,393 104,113 1,208,232
----------- ----------- ------------
Net cash used in operating activities (4,418,821) (2,089,684) (11,998,209)
INVESTING ACTIVITIES:
Purchases of property and equipment (365,226) (185,356) (909,857)
Increases in deposits (76,057) -- (76,057)
----------- ----------- ------------
Net cash provided by (used in) investing activities (1,174,153) (185,356) (1,718,784)
FINANCING ACTIVITIES:
Contributions from ATL 20,491,085 2,275,040 28,615,104
----------- ----------- ------------
Net cash provided by financing activities 20,491,085 2,275,040 28,615,104
Net increase (decrease) in cash and cash equivalents 15,630,981 -- 15,630,981
Cash and cash equivalents at beginning of period -- -- --
----------- ----------- ------------
Cash and cash equivalents at end of period $15,630,981 $ -- $ 15,630,981
=========== =========== ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Equipment acquired through capital lease obligations $ 732,870 $ -- $ 732,870
=========== =========== ============
</TABLE>
See accompanying notes.
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SONOSIGHT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
INTERIM FINANCIAL INFORMATION
The information contained herein has been prepared in accordance with
instructions for Form 10-Q. The information furnished reflects, in the opinion
of management of SonoSight, Inc. ("SONO" or the "Company"), all adjustments
necessary for a fair presentation of the results for the interim periods
presented. All such adjustments are of a normal recurring nature. The results of
operations for the three and six month periods ended July 3, 1998, are not
necessarily indicative of results to be expected for the entire year ending
December 31, 1998 or for any other fiscal period. These financial statements do
not include all disclosures required by generally accepted accounting
principles. For a presentation including all disclosures required by generally
accepted accounting principles, these financial statements should be read in
conjunction with the audited financial statements for the year ended December
31, 1997, included in the Company's Form 10.
On April 6, 1998, SonoSight became an independent public company having been
spun-off to the shareholders of ATL Ultrasound, Inc. ("ATL"). The accompanying
condensed financial statements include the accounts of the Company business,
which consists of what was, until April 6 1998, the highly-portable ultrasound
division of ATL. The financial statements for periods prior to April 6, 1998,
represent the combination of ATL's highly-portable ultrasound products division
and the corporate entity (SonoSight, Inc.) established to effect the April 6,
1998 distribution of SONO's common stock to the existing shareholders of ATL.
The accompanying combined financial statements for the periods prior to April 6,
1998, which are derived from the historical books and records of ATL, include
the assets, liabilities, revenues and expenses of SONO at historical cost.
WEIGHTED AVERAGE SHARES OUTSTANDING
The accompanying combined financial statements of SONO for the two quarters
ended June 27, 1997 present the number of weighted average shares used in
computing basic and diluted loss per share based on the exchange ratio
established in the April 6, 1998 distribution by ATL of one SONO share for every
three shares of ATL. All periods presented have been restated to reflect this
distribution. Options to purchase shares and restrictive shares issued by ATL
which were outstanding and totaling 333,871 and 593,840 as of July 3, 1998 and
June 27, 1997, respectively, along with outstanding options to purchase shares
issued by SONO totaling 997,000 as of July 3, 1998, were not included in the
computation of diluted net loss per share because to do so would be
antidilutive.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
This report contains forward-looking statements concerning the Company,
anticipated results of operations, cash requirements and anticipated products
and product introductions. Forward-looking statements are based on management's
projections and estimates on the dates on which the statements are made, and are
subject to certain risks and uncertainties and other factors that could cause
actual results to differ materially from those projected. These risks,
uncertainties and other factors include, without limitations, uncertainties
related to continued scientific progress in research and development programs;
the results of research and development efforts and clinical trials;
acquisitions of products or technology, if any; relationships with corporate
collaborators; competing technological and market developments; the time and
costs involved in filing, prosecuting and enforcing patent claims; the time and
costs of manufacturing scale-up and commercialization activities; uncertain
market acceptance of products and other factors discussed in connection with
particular forward-looking statements. Reference is made to the Company's
Report on Form 10 for more detailed description of such factors. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date of this report. The Company undertakes no obligation
to update forward-looking statements to reflect events or circumstances after
the date of this report or to reflect changes in management's projections or
estimates.
OVERVIEW
SonoSight, Inc. ("SONO" or the "Company"), a development stage enterprise,
commenced operations in 1994 as a project of ATL Ultrasound, Inc. ("ATL").
SONO was chartered to develop the design and specifications for a highly-
portable ultrasound device and other highly portable ultrasound products.
During the period from inception through April 6, 1998, the project was
organized as a separate division of ATL with the purpose of accelerating
research, development and commercialization of this device. On February 2,
1998, the ATL Board of Directors approved a plan to spin-off SONO as an
independent, publicly owned company. This transaction was effected through the
tax-free distribution of SONO's shares to ATL shareholders on April 6, 1998.
Shareholders of ATL received one share of SONO common stock for each three
shares of ATL common stock held.
SONO plans to use its technology to develop, manufacture, and market highly
portable diagnostic medical ultrasound devices. SONO's future growth will
largely depend on its ability to market and sell its ultrasound products to
physicians, hospitals, clinics, private medical practices and emergency medical
personnel worldwide. Since inception, funding from ATL and the U.S. Navy under
a U.S. Government Defense Advanced Research Projects Agency grant (the
"Development Contract") has been used to finance the development of SONO's
technologies. To date, SONO has not generated any revenue from product sales.
SONO will continue to incur operating losses at least until its product sales
generate sufficient revenue to fund its continuing operations. There can be no
assurances that there will be sufficient revenue to fund SONO's operations in
future periods.
RESULTS OF OPERATIONS
GRANT REVENUE
Grant revenue for the one and two quarters ended July 3, 1998 were $214,500 and
$973,107 versus $750,847 and $1,323,085 for the comparable periods in 1997.
Grant revenue is recognized per the terms of the Development Contract and is
generally tied to the achievement of technological milestones. The decrease in
grant revenue during 1998 as compared to 1997 was anticipated and is due to SONO
nearing the completion of the Development Contract and therefore reaching fewer
milestone achievements. Under the terms of the Development Contract, most of the
grant revenue available to SONO has been recognized through July 3, 1998. Future
revenues will depend primarily on product sales, which are not anticipated
until, at the soonest, the latter part of 1999 at which time SonoSight expects
to complete development of its initial product. The Company, therefore, does not
expect to recognize any significant revenues in the near term.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development expenses for the one and two quarters ended July 3,
1998 were $1,913,957 and $4,068,914 versus $1,727,804 and $3,023,472 for the
comparable periods in 1997. The increase in research and development expense is
due primarily to additional personnel and personnel related expenses and product
development expenses. The Company anticipates increased spending levels in
research and development in the near
Page 7 of 10 sequentially numbered pages
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term as it focuses on completing the Development Contract and completing
development of the initial Company's products.
SALES AND MARKETING EXPENSE
Sales and marketing expenses for the one and two quarters ended July 3, 1998
were $520,604 and $1,324,211 versus $28,322 and $265,719 for the comparable
periods in 1997. The increase in selling and marketing expenses is a result of
the Company's hiring of additional sales and marketing personnel and a
significant increase in sales and marketing activities in 1998 versus 1997.
Such increases in personnel and activities have been in support of product
definition and refinement of customer requirement specifications. The Company
will continue to add personnel and infrastructure to its selling and marketing
functions in anticipation of product introduction and expects that selling and
marketing expenses will increase significantly in the upcoming quarters.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expenses for the one and two quarters ended July 3,
1998 were $575,696 and $837,258 versus $174,969 and $270,088 for the comparable
periods in 1997. The increase in general and administrative expenses is a
result of an increase in personnel in the general management, administration,
finance and accounting functions in anticipation and as a result of SONO
becoming stand-alone public company. SonoSight will continue to add personnel
and infrastructure, though at a slower rate than in the most recent period, and
consequently anticipates that general and administrative expenses will continue
to increase.
NET LOSS
The net losses for the one and two quarters ended July 3, 1998 were $2,576,486
and $5,038,005 versus $1,180,248 and $2,236,194 for the comparable periods in
1997. This increase is due primarily to the increase in expenses as noted
above. The Company expects to incur significant net losses in the near term as
it continues to develop the infrastructure required for a stand-alone public
company and as it focuses on product development.
LIQUIDITY AND CAPITAL RESOURCES
On April 6, 1998, ATL contributed to the capital of SONO all cumulative advances
made by ATL (net of Development Contract payments received) in the amount of
$10,615,104 in addition to $18 million in cash. Further, ATL is obligated,
without contingency, to contribute an additional $12 million cash on January 15,
1999. To date, advances from ATL, including the $18,000,000 received at the
time of the spin-off, grants from the Development Contract and proceeds from
lease financing have funded the Company's capital requirements. As of July 3,
1998, cash and cash equivalents on hand totaled $15.6 million. The cash
requirements of SONO's business have increased in recent periods and are
expected to continue to increase as SONO continues product development
activities, engages in marketing and distribution development activities, and
builds the management and administrative infrastructure necessary to function as
a stand-alone public company.
SonoSight believes the existing cash and cash equivalents together with the $12
million to be received from ATL in January 1999 and funds which are available
through lease financing should be sufficient to fund the Company's operations
through the end of 1999. However, the amount of cash required to fund the
SonoSight's are difficult to predict, and will depend in part upon factors
beyond SONO's control. Capital requirements could exceed SONO's estimates as a
result of a variety of factors such as technical obstacles, delays in
development, cost overruns in research and development programs or establishing
manufacturing activities, greater than anticipated administrative expenses or
lower than anticipated adoption rates or revenues after product introduction.
Accordingly, SONO could need to seek additional equity or debt financing earlier
than it presently anticipates, and such financing may not be obtainable on a
timely basis, on favorable terms, or at all. If adequate funds are not
available to meet its cash needs, SONO may be required to significantly curtail
its research and development programs, its overall spending levels, or delay or
cancel marketing initiatives or product introductions, or obtain funds through
arrangements with collaborative partners or others that may require SONO to
relinquish rights to certain of its technologies or products.
Page 8 of 10 sequentially numbered pages
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PART II: OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a) Reports on Form 8-K
No reports on form 8-K were filed during the quarter ended July 3, 1998.
Page 9 of 10 sequentially numbered pages
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SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SONOSIGHT, INC.
(Registrant)
Dated: 8/13/98 By: /s/ Donald F. Seaton III
-------------------------- --------------------------
Donald F. Seaton III
Vice President, Finance,
Chief Financial Officer
(Authorized Officer and Principal
Financial Officer)
Page 10 of 10 sequentially numbered pages
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUL-03-1998
<CASH> 15,630,981
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,133,507
<PP&E> 1,605,152
<DEPRECIATION> 180,406
<TOTAL-ASSETS> 17,634,310
<CURRENT-LIABILITIES> 1,496,028
<BONDS> 0
0
0
<COMMON> 48,628
<OTHER-SE> 15,644,580
<TOTAL-LIABILITY-AND-EQUITY> 17,634,310
<SALES> 0
<TOTAL-REVENUES> 973,107
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,230,383
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,038,005)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,038,005)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,038,005)
<EPS-PRIMARY> (1.05)
<EPS-DILUTED> (1.05)
</TABLE>
